Tax Newsletter December 2014
For reference, internal circulation only
In this issue: NEW DOCUMENTS Temporary Guidance for Law on Customs 2014 Prioritized enterprises Timeline for customs declaration submission Customs procedures applicable to goods imported for processing/production of exported goods Issuance of Special Preferential Import Tariffs for the period of 2015-2018
GUIDING DOCUMENTS Tax Administration From 01 July 2013, no exemption of late payment in case of statute of limitation exceeded Value Added Tax (VAT) Guidance on commercial invoice management and declaration for export activities Transfer of projects under operating stage is still subject to VAT Current accounts for exported goods settlement must be opened in Vietnam No requirement for confirmation from the Ministry of Health to apply VAT rate of 5% with regards to healthcare machines and equipment Unifying guidance on refund of import VAT Corporate Income Tax (“CIT”) Transportation, loading & unloading expenses must be accounted to total deductible expenses used as the base in calculation the 15% cap Interest expenses on dividends borrowed to contribute to working capital are considered as deductible expenses Expenses being benefit-in-kind for 2014 arising prior to 15 November 2014 are still deductible expenses Foreign Contractor Withholding Tax (“FCWT”) Goods traded in bonded warehouses are still subject to FCWT Import - Export Duty List of scraps eligible for import as materials for manufacturing Price confidentiality during the procedure of on-the-spot export Overdue re-exported alcohol and tobacco are not allowed for tax refund Guidance for export duty imposed on goods manufactured from imported materials Transfer price in transactions with related parties Guidance for determination of net income before tax to apply the profit comparison method Policies on Labour and Social Insurance Several administrative procedures for the employment of foreign employees Settlement of medical expenses under Health Insurance scheme: backdated prescription are not accepted
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NEW DOCUMENTS Temporary Guidance for Law on Customs 2014 On 29 December 2014, the Ministry of Finance issued the Official Letter No. 19046/BTC-TCHQ providing guidance on the implementation of Law on Customs No. 54/2014/QH13. Accordingly, in order to consistently implement the Law on Customs 2014 while the guiding Decrees and Circulars are still pending, the Ministry of Finance has issued the temporary guidance. Under such guidance, effective 01 January 2015, provisions under currently effective legal regulations of which the contents are not contradict to the stipulations in Law on Customs 2014 shall remain in force until replacing regulations are issued. For provisions under current Decrees, Circulars of which the contents are inconsistent with Law on Customs 2014, the regulations of Law on Customs 2014 shall be applied. Below are several noticeable detailed guidance of Official Letter No. 19046:
Prioritized enterprises The priority policy offered to enterprises shall be implemented in accordance with Article 43, Law on Customs 2014. However, the conditions & eligibilities to apply priority are still regulated by Circular 86/2013/TT-BTC. Timeline for customs declaration submission For exported goods, the exporter is required to submit the declaration form, after finishing gathering the goods at the place which has been informed to the custom agency, no later than 04 hours before the departure of the transportation vehicle; for exported goods transported by express delivery services, the timeline is no later than 02 hours before the departure of the transportation vehicle; With respect to imported goods, the importer is required to submit the declaration form before the goods reach the border-gates or within 30 days of the arrival of the goods at the border-gates.
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Customs procedures applicable to goods imported for processing/production of exported goods Those procedures shall be continually in accordance with the stipulations in Circular 128/2013/TT-BTC and Circular 13/2014/ TT-BTC.
Issuance of Special Preferential Import Tariffs for the period of 2015-2018 On 14 November 2014, Ministry of Finance issued the following documents:
Circular No. 165/2014/TT-BTC on Special Preferential Tariffs of Vietnam under the implementation of the ASEAN Trade in Goods Agreement (ATIGA); Circular No. 166/2014/TT-BTC on Special Preferential Tariff of Vietnam under the implementation of the A S E A N - C h i n a F r e e Tr a d e Agreement (ACFTA); Circular No. 167/2014/TT-BTC on Special Preferential Tariff of Vietnam under the implementation of the A S E A N - K o r e a F r e e Tr a d e Agreement (AKFTA); Circular No. 168/2014/TT-BTC on Special Preferential Tariff of Vietnam under the implementation of the ASEAN - Australia - New Zealand Free Trade Agreement (AANZFTA ); Circular No. 169/2014/TT-BTC on Special Preferential Tariff of Vietnam under the implementation of the ASEAN India Free Trade Agreement (AANZFTA );
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Accordingly, imported goods eligible for preferential tax rates shall have to satisfy the following conditions: Included in Special Preferential Tariffs as per applicable Circular; Imported into Vietnam from Contracting States of the correspondent Agreements;
Transported directly from the exporting country to Vietnam; and Satisfying all regulations on country of origins in the correspondent Commodity Trading Agreements.
Those Circulars shall take effect from 01 January 2015.
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GUIDING DOCUMENTS
Tax Administration
Value Added Tax (VAT)
From 01 July 2013, no exemption of late payment in case of statute of limitation exceeded
Guidance on commercial invoice management and declaration for export activities
On 22 December 2011, Ministry of Finance issued the Official Letter No. 17428/BTC-TCHQ based on the opinions from Government Inspectors, State Auditors, Ministry of Justice, which included guidance providing that enterprises should not be imposed late payment if the statute of limitation has been exceeded. However, pursuant to Point 35, Article 1, Amended Law on Tax Administration No. 21/2012/QH13 dated 22 December 2014, Ministry of Finance issued the Official Letter No. 18615/BTC-TCHQ re-guiding that, from 01 July 2013, enterprises would still be subject to retroactive collection of late payments within the last 10 years of the date of discovery of violations.
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In making sure the consistence in understanding and usage of commercial invoice as per regulated by the Circular No.39/2014/TT-BTC, Circular No.119/2014/TT-BTC, Circular No. 219/2013/TT-BTC and Circular No. 215/2013/TT-BTC, on 12 November 2014, the General Department of Taxation (“GDT”) i s s u e d O L N o . 5 0 0 6 / T C T- C S providing guidance as follows: It is not required to inform the tax authority the issuance of commercial invoices used in export activities; Tax payers to include commercial invoices in the tax declaration using the output list No. 011/GTGT under item 'Goods, services subject to VAT at 0%'; The enforcement of expiredinvoice announcement stipulated by Circular No. 215/2013/TT-BTC is applicable only to invoices as provided by Circular No. 39/2014/TT-BTC dated 31 March 2014 issued by the MOF and not relevant for commercial invoices.
Transfer of projects under operating stage is still subject to VAT
Current accounts for exported goods settlement must be opened in Vietnam
On 23 December 2014, Ha Noi Tax Department issued Official Letter No. 64431/CT-HTr, replying to queries on VAT policy upon transfer of investment projects.
Providing guidance on the creditability conditions and eligibility for refund applicable for input VAT of exported goods and services, on 26 D e c e m b e r, 2 0 1 4 , G e n e r a l Department of Customs issued OL No. 15295/TCHQ-TXNK. Accordingly, if the overseas party remits payments for exported goods from their current account, it shall be also considered as payment via banks. However, those current accounts must be opened in Vietnam; bank accounts opened in other countries will not be accepted.
Accordingly, at the time of transfer, if the project is still under the investment stage and has yet gone into operations, and the transferee shall continue to carry out the project in order to supply/produce goods and services subject to VAT, such transfer is not required for VAT declaration/calculation base on transfer price. In case the transfer of projects which have been completed, involved parties shall have to declare and pay VAT.
No requirement for confirmation from the Ministry of Health to apply VAT rate of 5% with regards to healthcare machines and equipment On VAT for healthcare machines and equipment, there are two concurrently effective guiding documents with discrepancies in guidance: Pursuant to Clause 11, Article 10, Circular No. 219/2013/TT-BTC dated 31 December 2013 issued by MOF, the VAT rate of 5% shall be applied to medical machines, equipment and other specialized tools as per confirmation from the Ministry of Health. 7
However, pursuant to Clause 5, Article 4, Circular No. 83/2014/TT-BTC dated 26 June 2014 issued by MOF, medical machines, equipment and other specialized tools shall be subject to VAT as per the VAT rate table attached to Circular 8 3 . A c c o r d i n g l y, t h e confirmation procedure by the Ministry of Health is no more required for the application of 5% VAT rate. In order to clarify this issue, General Department of Customs has issued Official Letter No. 15096/TCHQTXNK dated 19 December 2014 providing unifying guidance, according to which the prevailing guidance for this particular matter shall be Circular 83, i.e. the confirmation procedure by the Ministry of Health is no more required based on the principle stipulated by Clause 3, Article 83, Law on Legal Document Issuance.
Unifying guidance on refund of import VAT On 16 December 2014, the MOF issued the Official Letter No. 18304/BTC-TCHQ providing guidance with regards to subjects and procedure to apply for refund of overpaid VAT at the importation stage. Pursuant to such guidance, imported goods in which VAT has been overpaid would be eligible for VAT refund in 04 cases, including:
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Imported goods of which the paid VAT amount exceeds the tax payables for each type of taxes within 10 years from the payment date; Imported goods to be re-exported to owners overseas, re-exported to a third state or re-exported to non-tariff zones; Exported goods to be re-imported before 1 September 2014 and applicable VAT has been fully paid upon the importation (effective 1 September 2014, reimported exported goods shall be exempted from VAT at import stage, pursuant to Clause 1, Article 3, Circular 119/2014/TTBTC); Goods being imported raw materials for exported goods manufacturing and not reexported as final products after the 275 days threshold, if applicable VAT has been paid, shall be allowed for tax refund after the final products are exported.
The procedure to apply for refund of overpaid VAT of goods at the importation stage shall be implemented simultaneously with the import duty refund as per regulated by Clause 2, Article 29, Decree No. 83/2013/ND-CP and Clause 3, Article 26, Circular No. 128/2013/TT-BTC. If the Customs Agencies have already confirmed the overpaid VAT and the enterprises have already declared, credited and/or requested for refund with the Tax Authorities, there should be no further adjustments on tax crediting and no claw-back of refunded tax.
Corporate Income Tax (“CIT”) Transportation, loading & unloading expenses must be accounted to total deductible expenses used as the base in calculation the 15% cap Pursuant to Circular 78/2014/TTBTC, with respect to trading activities, the total deductible expenses used as the base to calculate the 15% cap applicable for A&P expenses are only exclusive of cost of goods sold (i.e. being the prices on purchasing invoices). Accordingly, on 15 December 2014, the General Tax Department issued Official Letter No. 5573/TCT-CS, specifying that transportation, loading, preserving expenses and other relevant expenses arising during the purchase of goods would need to be included in such total base.
Interest expenses on dividends borrowed to contribute to working capital are considered as deductible expenses Pursuant to Official Letter No. 10152/CT-TTHT dated 25 November 2014, issued by Ho Chi Minh City Tax Department, in case that, under the agreement with investors, the Company is allowed to delay the distribution of dividends in order to increase usable working capital for business operations and payment of interest, such activity shall be considered as dividend borrowing for the contribution of working capital. At the time of dividend borrowing, if the Company's chartered capital has been fully contributed as per its license, the loan agreement and payment vouchers shall be the supporting documents for the Company to account the loan interests as deductible expenses for CIT purposes. Upon the remittance of interests to foreign investors, the Company holds the obligation to withhold and pay the applicable FCWT on behalf of the foreign investors pursuant to Circular No. 103/2014/TT-BTC.
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Expenses being benefit-inkind for 2014 arising prior to 15 November 2014 are still deductible expenses Pursuant to Article 1, Chapter 1, Circular No.151/2014/TT-BTC dated 10 October 2014 issued by the Ministry of Finance, providing guidance on CIT, expenses being benefit-in-kind provided directly to employees in the total amount not exceeding 01 average actual salary in a tax year shall be considered deductible expense for CIT purposes in that tax year. This provision applies for the tax year of 2014. If the enterprises incurred expenses being benefit-in-kind for 2014 (including expenses incurred prior to 15 November 2014), those expenses are still deductible expenses for CIT purposes in the tax year of 2014 accordingly. If these benefits are addressed to specific individuals, they are required to include in the employees' taxable income for PIT purposes. Above is the guidance provided by Official Letter No. 10007/CT-TTHT dated 20 November 2014 issued by the Ho Chi Minh City Tax Department.
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Foreign Contractor W i t h h o l d i n g Ta x (“FCWT”) Goods traded in bonded warehouses are still subject to FCWT On 19 December 2014, the General Department of Customs issued Official Letter No.15075/TCHQGSQL to the General Department of Taxation, providing their view on the assessment of FCWT obligations in the case of goods traded through bonded warehouses. Accordingly, bonded warehouses, while being a non-tariff zone having import/export relationship with external, are in fact still within Vietnam territory. Therefore, if the goods owners carry out trading activities in bonded warehouses, i.e. generate benefits/income from activities arising within Vietnam territory, they shall be considered having income arising in Vietnam and subject to FCWT as per the General Department of Customs' point of view.
Import - Export Duty List of scraps eligible for import as materials for manufacturing On 19 December 2014, the Prime Minister issued Decision No. 73/2014/QD-TTg providing guidance on List of scraps eligible for importation from overseas for being materials for manufacturing, including 36 types of scraps. HS codes and names of scraps in the List are pursuant to the Preferential Tariffs attached to Circular 164/2013/TT-BTC. The Decision is effective 05 February 2015 and not applicable for activities such as temporary import for re-export, transshipping and transiting of scraps through the territory of Vietnam.
Price confidentiality during the procedure of on-the-spot export
Pursuant to the Official Letter, upon the completion of the on-the-spot export, the in-charge Customs Department for export is responsible to notify the in-charge Customs Department for import. Such notification and its content are between the two departments; the Company is not required to prepare and submit such notification to the importing party. If the Customs Department for import has yet received the notification form the Customs Department for export, they still have to proceed with the import procedure based on the information in the completed export declaration. As a consequence, the Official Letter reaffirmed that the information relating to price would be kept confidential during the customs procedures for on-the-spot export under the regulations of Circular No.128/2013/TT-BTC and Circular No.22/2014/TT-BTC.
On 30 December 2014, the General Department of Customs issued Official Letter No.15423/TCHQGSQL, addressing the concern on customs procedure for on-the-spot export/import would disclose the information on price to a third party.
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Overdue re-exported alcohol and tobacco are not allowed for tax refund To prevent smuggling and trade fraud, the Ministry of Finance requires provincial Customs Departments not to approve/proceed import duty refund for temporarily imported alcohol, tobacco and wood for re-exporting, which are overdue the 365-day threshold. In case of re-exported within 365 days, those goods will be allowed for tax refund; however, the respective Customs Department must inspect 100% of actual goods during import and re-export procedures, with full validation, accurate procedures and sufficient customs documents as stipulated. Tax authorities and Customs Departments are required to review and audit the conditions, procedures as well as relevant documents when conducting a tax refund procedure. The above are guidance provided by Official Letter No.19128/BTCTCHQ issued by the Ministry of Finance on 30 December 2014.
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Guidance for export duty imposed on goods manufactured from imported materials Pursuant to Article 37, Article 112, Circular No.128/2013/TT-BTC, exported goods which are fully manufactured from imported materials are entitled to refund of import duty on respective materials and exemption of export tax. However, enterprises must register the material consumption level in advance or at the time of export declaration for the first consignment. No or late registration would result in the disallowance of export tax exemption. The above are the guidance p r o v i d e d b y O ff i c i a l L e t t e r No.14888/GDC-TXNK issued by the General Department of Customs on 15 December 2014.
Transfer price in transactions with related parties Guidance for determination of net income before tax to apply the profit comparison method P u r s u a n t t o O ff i c i a l L e t t e r N o . 5 5 4 5 / T C T- C C d a t e d 1 2 November 2014 by the General Tax Department, net profit before corporate income tax applicable for profit comparison method should exclude financing and other activities in order to eliminate significant differences which would impact the profitability of the enterprise. The said adjustment should depend on the business of each enterprise due to the fact that it is difficult to have similar independent enterprises without any impact of financial operations and other activities on main business activities. In addition, Official Letter No.5545 also provides that loans determining the related parties relationship in transaction of lending and capital guarantees are actual loans incurred, not nominal ones (borrowing limit on the loan contract).
Policies on Labour and Social Insurance Several administrative procedures for the employment of foreign employees On 24 December 2014, the Ministry of Labour, Invalids and Social Affairs issued Decision No.1694/QDLDTBXH, announcing newly issued, amending, supplementing or replacing administrative procedures under the authoritity of the Ministry of Labour - Invalids and Social Affairs. The Decision provides guidance on administrative procedures related to foreign employees, including: Issuance of working license during holidays for New Zealand citizen; Confirmation for the case of foreign workers not subject to work permit; Report on the demand for foreign labours; Report on changes in demand for foreign labours; Request for recruitment of Vi e t n a m e s e e m p l o y e e s f o r positions expected for foreign labours;
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Request for confirmation of unemployment status that yet been registered; Request not to receive unemployment allowance/subsidy. Decision No.1694 came into effect on the date of signing.
Settlement of medical expenses under Health Insurance scheme: backdated prescription are not accepted As stipulated by Article 19, Joint Circular No.09/2009/TTLT-BYTBTC, dossiers requesting for direct payments of medical expenses using mandatory Health Insurance (HI) scheme would need the following legitimate documents: prescriptions, medical books, invoices, hospital receipts and other relevant documentations. With respect to the invoices relating to prescription, the date of the invoice must be as per the provision of medicines by the supplier; backdated invoices are not accepted.
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Pursuant to Article 16, Circular 09, provides guidance on the date of invoice for the supply of goods or services has been provided; accordingly, the date of medicine invoice must be the date in which suppliers provide medicines to the purchaser. Therefore, prescriptions bought with the supplementation of invoice with current date are not in compliance with the Ministry of Finance's regulations as stated above. Social Insurance Agency does not have the obligation to settle expenses which are not supported by legitimate documentation.
Above is the guidance in Official Letter No. 4644/BHXH-CSYT issued by the Social Insurance Agency of Vietnam on 01 December 2014 on direct payments for medical expenses under mandatory HI scheme.
Contact For more information, please contact:
Thomas McClelland Tax Leader +84 (8) 3910 0751
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Bui Tuan Minh Tax Partner +84 (4) 6268 3568
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Bui Ngoc Tuan Tax Partner +84 (4) 6268 3568
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Phan Vu Hoang Tax Partner +84 (8) 3910 0751
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Hanoi Office 12A Floor, Vinaconex Tower 34 Lang Ha St., Dong Da District, Hanoi, Vietnam Tel: +84 4 6288 3568 Fax: +84 4 6288 5678
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Dion Thai Phuong Tax Partner +84 (8) 3910 0751
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Ho Chi Minh City Office 18th Floor, Times Square Building, 22-36 Nguyen Hue St., District 1, Ho Chi Minh City, Vietnam Tel: +84 8 3910 0751 Fax: +84 8 3910 0750
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